Fourth quarters in this industry are special. For years I have wondered what forces were at work, always driving volume increases in the fourth quarter, the fourth quarter of the fiscal year that is, not the Christmas season. Companies have different fiscal years, but they all seem to experience their own 4th quarter miracles. Heidelberg seems to be no different.

No question, Heidelberg's financial performance is improving and management is lowering the break-even point. However, orders have been declining each quarter for the last nine months. To maintain its sales and earnings forecast the equipment division will have to boost shipments by at least 50% over its year-to-date average. If orders in the quarter don't pick up as well, the first quarter could look ugly.

As evident from the most recent 3rd quarter report (ending 12/13), improved performance for the equipment segment, a better net financial result and a little bit of help on the tax line resulted in positive net income of Euro 7 million for the quarter.

For the fiscal year (ending 3/14), management expects positive net income at revenues 10% below last year's level of Euro 2.735 billion. Therein lies a formidable challenge with potentially further consequences for the new fiscal year.

Sales for the 4th quarter would have to be around Euro 770 million and the equipment segment would have to ship between Euro 500 and 550 million (depending on how much extra the services segment can ship). At that level the company would certainly be able to generate the net income needed to finish the year in the black.

While there is no question that Heidelberg's factory can accomplish that level of shipments (Q4-12/13 was an even higher Euro 630 million), current backlog of Euro 540 million is not exactly comfortable. And if the downward trend in orders of the first three quarters does not get reversed in Q4, the company will likely start the year even deeper in the hole than a year ago.

One can only hope for a 4th quarter order miracle to help build some backlog and avoid the first quarter droughts Heidelberg has seen in the last two years.

One thing to add is that American corporations are overly focused on quarterly financial results while European companies are overly focused on annual financial results.

Both have advantages and disadvantages but distort financial reporting to achieve 'better' visible results for shareholders or the wider stock market or both.

Richard Sutis

2/12/2014 05:45:33 am

Jochen points to a seasonality in a very diverse worldwide market-from developed to emerging and from greeting cards to posters to brochures to packaging etc ,..This diversity is a strength for Heidelberg orders and a complexity in manufacturing that they have managed well for many years.

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